Musings on World events from the perspective of a Social and an Economic Liberal.

Monday, August 14, 2006

Time to control taxation

A few weeks ago, the Lib Dems put forward some outline ideas on taxation that involve cutting the headline rates of income tax. I welcomed those proposals then. Last week, more detailed proposals were put forward, which continue the theme. Indeed the substantive proposals are extremely well thought out.

To my mind there is not much doubt that the Labour taxation plans have got to the point of pain. The salami tactics that they have used, while less eye catching than a straight forward increase in tax rates, have substantially boosted government revenues. Unfortunately the other side of the equation- spending- has been less well judged. The government has not set in hand effective ways to control and administer spending, neither on health or welfare nor on education. Part of this is the fact that they refuse to recognise that individual circumstances make blanket spending commitments highly inefficient. The result has been a general increase in costs, but a sharp fall in overall productivity.

Thus Liberal Democrat tax plans should be seen in a wider context. Firstly, the burden of administration is now too expensive- this was part of the thinking behind our proposal to abolish the DTi, but this was not the only area where we intend to deregulate. In large areas of administration and regulation we have proposed the wider use of sunset clauses and the retirement of irrelevant legislation. The cost of doing business in the UK should not rise any further, and if at all possible should be reduced. This includes the cost of doing government business.

The other side of the coin is personal taxation- as more fees are collected by the Labour government, and such financial packages as student grants are phased out, the overall burden on the tax payer as increased quite sharply. The time has come to cut the overall burden of personal taxation. In particular, income tax rates should now be cut.

The next question is how to make up the short term funding gap. This, we have proposed, can be done in the short term by increasing taxation on polluting and energy inefficient activities. In my opinion this can only be a short term policy- since if successful, it would automatically reduce revenue. The longer term goal will have to be to get government to function within tighter financial limits.

I see Tory bloggers trying, ostentatiously, to either rubbish or ignore these proposals.

They fear them because they know that they are credible, substantive and effective, and they are right to be afraid- anything the Conservatives now talk about in tax or environmental policy is just going to look like "me too".

Mind you the policy-free vacuum that is the Blair-lite Tory Party increasingly lacks credibility across the board.

1 comment:

Hear, hear. I'm very glad that someone is saying this. Tax cuts are associated with breaks for the already rich, but in fact the part of personal income taxation that needs to be hacked away at is the absurdly low level at which the personal allowance ends. Drastically raising this threshold would be more effective at getting people back into work than half a dozen complex tax credit schemes because it simplifies the incentive to earn wages.